💳 How to charge enterprise clients by credit card - upfront or after usage?
I'm working on a product for enterprise clients. It's a small utility web app for corporate teams. Little money for them, but not bad for me - a guy who wants to escape a 9-5 job.
Facts:
- The team owner provides a credit card.
- I want to charge by team size. It can vary a lot by a corporation.
- I don't want to make complicated usage calculations. Team member added in the middle of the month is treated the same as team member added at the beginning of the month.
I came up with two pricing models.
💰 Upfront payment with naive team size calculation
Scenario:
- Free trial (no credit card required)
- The app stops working and asks for a credit card
- The team owner provides a credit card number
- The app charges money immediately based on the current number of users in the team
- The app starts working
- The app charges money every 30 days
➕ Pros
- No risk of invalid credit card
- No problem of clients refusing to pay
➖ Cons
- Possibility of fraud - the team owner can remove all users on billing day and add them the next day
💰 After usage payment with more advanced team size calculation
Scenario:
- Free trial (no credit card required)
- The app stops working and asks for a credit card
- The team owner provides a credit card number
- The app starts working
- The app charges money after 30 days based on the maximum team size detected in this period
- The app charges money every 30 days
➕ Pros
- No possibility of fraud because of more advanced team size calculation
➖ Cons
- Risk of invalid credit card or having to validate credit card by charging $1
- The problem of clients refusing to pay
❓ What do you think? Do you have other ideas? 🙏
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What I learned working with large organizations is that they prefer stability or predictability over the amount that you want to charge. So $99 per month for up to 10 people, works better for them then one month $32, next month $48, third month $16. It might be that billing per seat is stable enough, but keep that in mind.
I would go for upfront. The con of being able to remove team members can be removed by pro-rating any new or removed team member. Stripe does this automatically by the way. (So if you add a team member 2 days before the next billing cycle, 6,7% of a full month is charged. If you remove a team member on day 14, 50% is discounted on the next invoice).
I would also definitely add a yearly pricing plan. Again, predictability :) They receive budgets for a year and have to spend that.
Strongly believe option #1 is the right way to go. On the fraud scenario...if people are really doing this, you likely have a bigger problem than when you bill. It's corp money, and that's a lot of work to save Big Corp money (not my money). I have to spend my time to do that but get no reward. Plus, as a user, I would expect that when I add them back the next day, I would get charged again (upfront), so I'd have no reason to try that.
+1 to @timanrebel on yearly. Typically priced at ~80% of 12*monthly pricing, making 10 months the break even. People will buy this simply so they don't have to submit expense reports every month